Can You Get a Refund From a Bad Hedge Fund?

Disgruntled hedge-fund investors might be able to make new use of an old technique to erase some of their losses.

Earlier this month, David Blass, chief counsel of the division of trading and markets at the Securities and Exchange Commission, gave a speech before an investment-law group in which he warned that many "private funds"—hedge funds, private-equity portfolios and the like—might be breaking the law when they sell to...